Thursday, July 13, 2017

Community Development Subsidies

The Department of Housing and Urban Development (HUD) will spend $10 billion this year on “community development,” including Community Development Block Grants (CDBGs). The grants to state and local governments are for such things as repairing streets and subsidizing neighborhood businesses. There is no constitutional or practical reason why the federal government should be involved in such local activities.

Furthermore, a new city-by-city analysis by Politico shows that CDBG spending is disbursed with little regard to actual “need” or “fairness.”

San Francisco will get $19-a-person in community development block grants this year, while Allentown, with twice the poverty and less than half of the median income, will draw a per-capita allotment of $17.53….Community development block grants rely on outdated, 1970s formulas that have increasingly shuttled dollars to wealthy places like Newton, Mass., while other locales in need, such as Compton, Calif., go wanting.

Tad DeHaven found similar problems with the program. He noted, “CDBG spending has gradually shifted from poorer to wealthier communities over time…It should not be the role of the federal government to redistribute income between regions, but even if it was, the CDBG program is not very good at it.”

President Donald Trump’s 2018 budget proposes to eliminate the CDBG program, saying “the program is not well-targeted to the poorest populations and has not demonstrated results.” Good for the president.

There is no sound reason for the federal government to fund the CDBG program or hundreds of other local subsidy programs. As I discuss here, these programs generate bureaucratic waste, undermine political accountability, and stifle policy innovation in the states.

The federal aid system generates no net value—it is simply a roundabout way of funding local activities. Taxpayers in San Francisco mail checks to the IRS to fund the CDBG program. Their money flows through the HUD bureaucracy, and then is dished out to bureaucracies in Harrisburg and Allentown, with some trickling down to local residents and businesses. Meanwhile, taxpayers in Allentown are also mailing checks to the IRS to fund the CDBG program. Their money flows through the HUD bureaucracy, and then is dished out to bureaucracies in Sacramento and San Francisco, with some trickling down to local residents and businesses.

What is the point of that?

There is none—other than to empower the well-paid political and bureaucratic elites in all three levels of government, and in the derivative lobby groups. The federal aid system thrives not because it benefits the American people, but because it benefits governments and lobbyists.